Sends Letter to Stockholders Outlining
Urgent Need for Change to Restore and Rebuild Value
Highlights Poor Operational Performance,
Egregious Executive Compensation and Reckless Capital Allocation
Under Incumbent Board
Urges Stockholders to Vote FOR Rubric’s Nominees Thomas A. Lacey and Deborah
S. Conrad on the WHITE Proxy
Card
Rubric Capital Management LP (“Rubric”), an investment advisor
whose managed funds and accounts collectively own approximately
9.0% of the outstanding shares of common stock of Xperi Inc. (NYSE:
XPER) (“Xperi” or the “Company”), today filed its definitive proxy
statement with the Securities and Exchange Commission in connection
with its nomination of Thomas A. Lacey and Deborah S. Conrad for
election to Xperi’s Board of Directors (the “Board”) at the
Company’s 2024 Annual Meeting of Stockholders, which is scheduled
to be held on May 24, 2024.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20240417649522/en/
XPER Share Price Performance (Source:
Bloomberg)
Rubric also sent a letter to Xperi stockholders outlining the
urgent need for change at the Company in order to reverse its
history of underperformance and poor decisions under the incumbent
Board and drive long-term stockholder value.
The full text of the letter follows:
April 17, 2024
Dear Fellow Stockholder:
At Xperi Inc.’s (“Xperi” or the “Company”) upcoming 2024 Annual
Meeting of Stockholders, which is scheduled to be held on May 24,
2024, you will be presented with a choice: maintain the status quo
of underperformance by voting for an incumbent Board of Directors
(the “Board”) which has overseen years of stockholder value
destruction, or elect to the Board two new directors with the
perspectives, skills and expertise to help set Xperi on a
trajectory of sustained growth and profitability. As a large,
long-term Xperi stockholder who, like you, has seen the value of
our investment deteriorate, we urge you to choose the latter by
voting FOR our director
nominees – Thomas A. Lacey and Deborah S. Conrad – on the enclosed
WHITE proxy card today.
RUBRIC IS ALIGNED WITH YOU AND HAS A PLAN
FOR CHANGE
Rubric Capital Management LP (“Rubric”) manages funds and
accounts which collectively own approximately 9.0% of Xperi’s
common stock, making us the Company’s third largest stockholder. We
have been stockholders of Xperi since its spin-off from its
predecessor company on October 1, 2022, and we were stockholders of
Xperi’s predecessor company since 2017.
We invested in the Company due to its attractive portfolio of
innovative enablement technologies and our firm belief in their
significant monetization potential. Unfortunately, from our
perspective, this potential has been squandered under the oversight
of the current Board, and stockholders have paid the price.
We take no pleasure in publicly criticizing companies or
directors and prefer to spend our time working collaboratively with
the boards and management teams of our portfolio companies to help
drive sustained value. We have taken this same constructive
approach to our engagement with Xperi’s Board and management team
across the duration of our investment. Unfortunately, in our view,
this Board has shown that it is more focused on granting excessive
compensation to executives than it is engaging with stockholders to
improve the Company’s performance. Simply put, the direction of the
Company is untenable, and we believe meaningful change is required
in the boardroom to ensure stockholder value is not eroded
further.
Rubric has a clear roadmap for change and value creation that
benefits all stakeholders. We have identified two highly qualified,
independent director candidates – Thomas A. Lacey and Deborah S.
Conrad – with the leadership experience, marketing knowledge, and
financial and corporate strategy expertise that is urgently needed
to stem the tide of losses at Xperi and drive long-term stockholder
value. We are confident that Mr. Lacey and Ms. Conrad will act as
dedicated advocates for the interests of ALL Xperi stockholders,
and will work tirelessly to address the poor operational
performance, egregious insider compensation and reckless capital
allocation practices that we believe have continued to plague the
Company.
Vote for restoring and building value at
Xperi. Please vote your enclosed WHITE proxy card TODAY for
the election of Thomas A. Lacey and Deborah S. Conrad. Vote by
telephone, over the Internet, or by signing, dating and returning
your WHITE proxy card in the postage-paid envelope
provided.
XPERI AND THE CURRENT BOARD HAVE A HISTORY
OF UNDERPERFORMANCE
Underperformance has been idiomatic to Xperi throughout its life
as a standalone company – and earlier. Since the completion of
Xperi’s spin-off, the Company’s shares have materially
underperformed any comparable benchmark, declining by approximately 28%. During this
same period, the S&P Software Index (GICS: 451030) had a total
return of approximately 74% and the Russell 3000 returned
approximately 42%.1
See XPER Share Price Performance chart.
While this underperformance is alarming, the duration of
measurement is too short to warrant censure on its own. Xperi’s
former parent company, Xperi Holding Corporation (“Xperi Holding”)
(n/k/a Adeia Inc. (“Adeia”)), which shared all but one director
from the Company’s current Board, similarly underperformed
comparable benchmarks on both an absolute and relative basis. Xperi
Holding shares were down approximately 27% on a trailing 3-year
total return basis coming into the spin-off, underperforming the
Russell 3000 by 52% and the S&P Software Index (GICS: 451030)
by 81%.2
Contrast this with the performance of Xperi’s predecessor
company under Rubric director nominee Thomas A. Lacey, who served
as CEO of the business from 2013 to 2017 and oversaw stockholder
returns that were double the rate of the Russell 3000 (21% vs 10%
CAGR),3 and it becomes clear to us what – or who – is responsible
for the destruction of stockholder value.
XPERI’S POOR MARGINS HAVE LED TO
UNACCEPTABLE UNDERPERFORMANCE
Xperi’s margin performance has been similarly underwhelming when
compared to peers, and points to an excessive expense structure
that desperately needs to be addressed in order to unlock
stockholder value.
The facts speak for themselves. Despite operating at a similar
revenue scale to, and having higher gross margins than, its
Institutional Shareholder Services Inc. (“ISS”) peer group,4
Xperi’s LTM Adjusted EBITDA margins are
~1,700 basis points below peers.5
Adjusted
Adjusted
Revenue ($MM)
Gross Margin
EBITDA Margin
Average ISS Peers
$538
76%
23%
Xperi
$521
78%
7%
Xperi vs ISS Peer Average
2%
-17%
To put Xperi’s level of operational underperformance in context
for stockholders, simply achieving peer margins (which are within
the target ranges Xperi provided at its 2022 Analyst Day), and
valued using a median 2024 peer group multiple of 11.0x EBITDA,
Xperi would be worth approximately $29 per
share, representing an increase
of approximately 170% over its current price.6
XPERI’S BOARD SEEMINGLY REWARDS INSIDERS TO
THE DISADVANTAGE OF STOCKHOLDERS
To make matters worse, Xperi has instituted a compensation
program that seemingly rewards insiders to the disadvantage of
stockholders. In 2023, the Company issued over 4.2 million RSUs to
insiders (approximately 76% of which are not subject to any
performance-based vesting), representing approximately 9% of the
Company’s diluted share count, and recognized a stock-based compensation expense of
approximately $70 million.7 This dilution occurred while
Xperi grew revenue by only 4% in 2023, and reduced the midpoint of
its EBITDA guidance in the third quarter.
To drive this point home, during 2023, Xperi’s former parent,
Adeia, which has over twice as many shares outstanding and twice
the market capitalization of Xperi, issued only 2.9 million RSUs,
or approximately a 2.7% dilution, less than 33% of that experienced
by Xperi stockholders.8 Adeia’s stock-based compensation expense
was only roughly $18 million for the full year (nearly $52 million
less than Xperi).9
Unsurprisingly, Xperi’s stock-based compensation expense is
similarly bloated when compared to its ISS peer group.10
GAAP SBC Expense GAAP SBC Expense as % of
Revenue as % of Market Cap Average ISS Peers
9.6%
2.98%
Xperi
13.3%
14.72%
The fact that this Board deems such an unsustainable and
misaligned compensation scheme appropriate, despite Xperi’s
staggeringly poor returns, is, in our view, indefensible. It is for
this reason that we are seeking to replace two of the three members
of the Board’s Compensation Committee – Darcy Antonellis and David
C. Habiger – with new independent directors who are committed to
prioritizing the best interests of stockholders.
WE BELIEVE XPERI’S RECKLESS CAPITAL
ALLOCATION HIGHLIGHTS THE BOARD’S POOR DECISION MAKING AND
THREATENS THE PRESERVATION OF STOCKHOLDER VALUE
We have watched and grown increasingly concerned about the
capital allocation decisions being made at Xperi. These concerns
began when Xperi’s former parent disclosed the existence of its
investment in Perceive Corporation (“Perceive”) in 2020.
Unbeknownst to stockholders, Xperi’s former parent had been
spending upwards of $20 million per year to incubate an AI startup,
apparently without regard to cost of capital. At the time (and many
times since), we recommended that the Company (and its former
parent) sell a partial stake in Perceive in order to provide
investors with a metric by which to value Perceive’s potential,
while derisking some of the financial drag. Despite those
repeatedly stated concerns, it was not until February 28, 2024 that
the Company announced that it had hired Centerview Partners LLC to
finally conduct a strategic review for Perceive.
Moreover, in December 2023, the Company announced that it agreed
to sell its AutoSense division to Tobii AB (“Tobii”) for
approximately $42.7 million. Despite what we believe to be a long
runway of potential growth driven by regulatory changes requiring
additional in-cabin monitoring, Xperi elected to divest this
business for zero upfront
consideration, instead
accepting a $27.7 million promissory note paid in three tranches
starting in 2027, and $15 million in future cash payments made over
four years starting in 2028.11 In other words, Xperi sold a
business it incubated and understands well, and instead became the
primary creditor to Tobii, a company that has had negative
operating profit in 10 of the last 11 quarters and currently has an
enterprise value of approximately $35 million.12
These actions are, in our view, emblematic of the Board’s
repeated poor decision making and capital mismanagement, which we
fear are a grave threat to the preservation of stockholder
value.
RUBRIC’S NOMINEES BRING THE EXPERIENCE AND
OVERSIGHT REQUIRED IN XPERI’S BOARDROOM
It is apparent that Xperi’s Board as currently constituted
cannot be trusted to effectively lead the Company forward and
create value for stockholders. Accordingly, we have nominated two
highly qualified, independent directors – Thomas A. Lacey and
Deborah S. Conrad – who will help bring the necessary rigor and
skillset to improve the Board for the benefit of all stakeholders.
Our nominees have proven track records of value creation and
possess relevant operating and capital allocation expertise that we
believe is needed to help Xperi reach its full potential.
If elected, our nominees are committed to working alongside the
incumbent directors to:
- Address the operational underperformance which has directly
contributed to the Company’s declining stock price;
- Design a compensation plan that is aligned with stockholders
and truly pays for performance; and
- Allocate capital in a more efficient and results-oriented
manner.
With the right plan and right people in place, we are confident
that Xperi can deliver meaningful long-term value to stockholders.
We urge you to protect and enhance the value of your investment by
voting for Rubric’s director nominees – Thomas A. Lacey and Deborah
S. Conrad – on the enclosed WHITE proxy card today. Together, we can make
Xperi extraordinary.
PLEASE VOTE YOUR WHITE PROXY CARD TODAY.
If you have any questions, require
assistance in voting your WHITE universal proxy card, or
need additional copies of Rubric’s proxy materials, please contact
our proxy solicitor Okapi Partners at (855) 305-0856 or via email
at info@okapipartners.com.
Sincerely,
David Rosen Managing Partner Rubric Capital Management LP
Your Vote Is Important, No
Matter How Many or How Few Shares You Own!
Please vote today by telephone,
via the Internet or
by signing, dating and returning
the enclosed WHITE proxy card.
Simply follow the easy
instructions on the WHITE proxy card.
If you have questions about how
to vote your shares, please contact:
Okapi Partners LLC
1212 Avenue of the Americas, 24th
Floor
New York, New York 10036
Stockholders may call toll-free:
(855) 305-0856
Banks and brokers call: (212)
297-0720
E-mail:
info@okapipartners.com
____________________ 1 Source: Bloomberg. Calculated as of March
7, 2024. 2 Source: Bloomberg. Calculated as of September 30, 2022.
3 Source: Bloomberg. 4 See ISS report published on March 31, 2023
in connection with the Company’s 2023 annual meeting of
stockholders. Peer group consists of A10 Networks, Inc.; Appian
Corporation; BlackBerry Limited; Everbridge, Inc.; OneSpan Inc.;
Rimini Street, Inc.; SolarWinds Corporation; Varonis Systems, Inc.;
Yext, Inc.; Adeia Inc.; Blackbaud, Inc.; Commvault Systems, Inc.;
InterDigital, Inc.; Progress Software Corporation; SecureWorks
Corp.; Upland Software, Inc.; Verint Systems Inc.; and Zuora, Inc.
5 Source: Xperi Form 10-K, filed March 1, 2024; year-end and
quarterly reports filed by ISS peer group members; VisibleAlpha.
Calculated on LTM basis as of March 7, 2024. Adjusted Gross Margin
defined as (total revenue – (cost of goods sold plus stock-based
compensation expense)) / total revenue. Adjusted EBITDA Margin
defined as (operating income plus depreciation, amortization,
stock-based compensation expense, transaction and restructuring
expenses) / total revenue. 6 Source: Rubric analysis with inputs
from Bloomberg/VisibleAlpha. Calculated as of March 7, 2024. 7
Source: Xperi Form 10-K, filed March 1, 2024. 8 Source: Adeia Form
10-K, filed February 23, 2024. 9 Source: Adeia Form 10-K, filed
February 23, 2024. 10 Source: Xperi Form 10-K, filed March 1, 2024;
year-end and quarterly reports filed by ISS peer group members;
VisibleAlpha. Calculated on LTM basis as of March 7, 2024. 11
Source: Xperi press release, dated December 12, 2023. 12 Source:
Tobii year-end and quarterly reports. Enterprise value as of March
7, 2024.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240417649522/en/
Media: Jonathan Gasthalter/Sam Fisher Gasthalter & Co. (212)
257-4170
Investors: Jason W. Alexander/Bruce H. Goldfarb Okapi Partners
LLC (212) 297-0720
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